Contents

Long CALL Butterfly

Long Call Butterfly is a neutral outlook strategy. It can be visualized as a combination of bull call spread and bear call spread.

It is built by buying a lower strike CALL, selling 2 ATM CALLs & buying a higher strike call.

It is a popular positional strategy traded on the Index options.

Trade Set-Up

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Buy 1 lower strike CALL

Naked Call 1-Finvezto

Sell 2 ATM CALLs

short call-Finvezto

Buy 1 higher strike CALL

Naked Call 1-Finvezto

Long CALL Butterfly

butterfly-Finvezto

Entry Checklist

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Market Outlook
  • When you have a neutral outlook and expect the price to stay in a tight range.
  • Volatility
  • Initiate the strategy when the implied volatility levels are neither moving up or down and quite stable
  • Risk Profile

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    Risk [Loss]
  • Maximum Loss is limited to the net debit paid
  • Reward [Profit]
  • Maximum profit is when the price ends at the strike price of 2 ATM CALLs that you sold.
  • Break Even Point
  • Lowest Strike Price plus the net debit paid
  • Highest Strike Price minus the net debit paid
  • Options Greeks Impact

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    Time Decay Impact [Theta]
  • Time decay is helpful for the position as long as price stays closer to the ATM call
  • Volatility impact [Vega]
  • When the price is closer to the ATM sold CALL then you want the volatility to decrease
  • When price is closer to the bought calls then you want the volatility to increase
  • Trade Management & Exit

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    Stop Loss & Exit
  • The strategy is highly profitable closer to the expiry. The risk reward is very high closer to expiry. You can hold the position and not worry about stop loss as this position already comes with low risk.
  • Set up the position such that you are willing to forego the entire net debit. The net debit paid should be 1-2% of your capital.